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JK 1593 
1912 
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• Congress, ) HOUSE OF REPRESENTATIVES, j Report 
d Session. ( \ No. 672. 


REMOVAL INTO FEDERAL COURTS OF CAUSES AGAINST CORPORA¬ 
TIONS ON ACCOUNT OF DIVERSE CITIZENSHIP. 


May 8, 1912.—Referred to the House Calendar and ordered to be printed. 


ii ,S f * r 

Mr. Rucker of Missouri, from th^ Committee on the Judiciary, 
submitted the following 

REPORT. 

[To accompany H. R. 23186.] 

The Committee on the Judiciary, to whom was referred the bill 
(H. R. 23186) entitled “A bill to amend an act to codify, revise, and 
amend the laws relating to the judiciary, approved March third, nine¬ 
teen hundred and eleven/’ beg leave to report that they have had 
the same under consideration and recommend that said bill do pass. 

The change in existing law which will be wrought by the passage 
of said bill is contained in that portion of same after the last proviso, 
the language being as follows: 

Provided further, That no suit against a corporation or joint-stock company brought 
in a State court of the State in which the cause of action arose shall be removed to 
any court of the United States on the ground that the parties are citizens of different 
States if the suit is brought in the county where the cause of action arose or within 
the county where the defendant is served with process and the plaintiff resides. 

This is substantially the same act as that which passed the House 
during the Sixty-first Congress as an amendment to the general bill 
revising the laws relating to the judiciary, but which amendment 
was not voted upon in the Senate. 

It is believed that with the development of modern corporations 
with their various ramifications and refinements the conditions have 
so changed as not longer to justify permitting a corporation doing 
business in a State to claim “citizenship” in some other State and 
upon that fiction remove causes brought against it from the State 
to the Federal courts, most often to the great inconvenience of the 
party plaintiff, and frequently resulting in a substantial denial of 
justice because of this inconvenience. 

The proposed legislation affects existing law only in so far as the 
question of jurisdiction depends" upon the character or citizenship of 
the parties litigating, and affects only corporations in this regard. 
All other grounds of jurisdiction are left untouched. 









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CAUSES AGAINST CORPORATIONS. 


' 2 . 

c -^1 


HISTOKY OF LEGISLATIVE AND JUDICIAL ACTION. 


The third article of the Constitution of the United States is devoted 
to the judiciary. The second section of that atticle provic es ia ^ 
judicial power of the United States shall extend to nine c asses o 
cases which are there specifically enumerated. Ihe sixtn class, 
that of cases between a State and citizens of another State, was 
eliminated or abrogated by the eleventh amendment to the Constitu¬ 
tion, so that now there are eight classes of actions, together with sue 1 
others as may arise under the fifth and fourteenth amendments, to 
which the judicial power of the United States extends. Omitting 
all except that class directly involved in the proposed bill and lor 
clearness quoting the exact language of the organic law, we have this: 


The judicial power shall extend to all cases between citizens of different States. 

The first serious business which engaged the attention of the first 
Senate of the United States was the judiciary act establishing the 
various courts and making provision for their jurisdiction. This act, 
after extensive and learned debate in the Senate and the House, 
was passed by both bodies, signed by the President, and became the 
law on September 24, 1789. It is usually referred to as the judiciary 
act of 1789. The eleventh section of that act provided as follows: 


The circuit courts shall have original cognizance, concurrent with the courts of the 
several States, of all suits of a civil nature at common law or in equity, where the 
matter in dispute exceeds, exclusive of costs, the sum or value of $500, when the suit 
is between a citizen of the State where the suit is brought and a citizen of another 
State. 

Section 12 of that act provided that the defendant in any case 
concerning which jurisdiction was given by section 11 to the circuit 
courts of the United States might remove the cause from any State 
court in which he was sued to the Federal circuit court by the filing 
of petition alleging or setting forth the diversity of citizenship, etc. 

The provisions of sections 11 and 12 of the original judiciary act, 
in so far as they related to jurisdiction based on diversity in citizen¬ 
ship, remained unchanged until the act of July 27, 1866. (Chap. 
288, vol. 14, p. 306, U. S. Statutes at Large.) By this act the re¬ 
moval phase of the law was amended so as to provide in substance 
that suits, where the matter in dispute exceeds $500, brought in 
State courts against aliens, or by citizens of the State where brought 
against any citizen of said State and a citizen of another State, if the 
suit, in so far as it relates to the alien or nonresident defendant, is or 
has been instituted for the purpose of restraining or enjoining him, 
or if the suit is one in which there can be a final determination of the 
controversy, so far as it concerns him, without the presence of the 
other defendants as parties in the cause, then such alien defendant 
may remove the cause to the circuit court of the district where the 
suit is pending. 

In 1867 the act of March 2 amended the removal law so as to pro¬ 
vide that either defendant or plaintiff in a cause might, when the 
amount involved was more than $500, remove the same to the Federal 
court by making affidavit that on account of prejudice or local influ¬ 
ence he had reason to believe and did believe he could not obtain 
justice in the State court. This act, which was thought to be made 
necessary by conditions growing out of the war of secession, did not, 


njnr/Hj 

X4’t§1? 


CAUSES AGAINST CORPORATIONS. 


3 


however, affect the removal where the sole ground was that of diverse 
citizenship; but in 1875 the act of March 3 (chap. 137, vol. 14, p. 470) 
further amended the removal act so that either party to the suit, 
where the controversy was between citizens of different States, as 
well as in other causes, might remove the action to the Federal 
court, thus putting the plaintiff on the same ground precisely as the 
defendant had been all along. The effect of this act was, of course, 
to give the plaintiff two elections. He could first sue in the State 
court, and if he saw that he was likely to lose there, could at any time 
remove the action to the Federal court. 

This act made some changes in the language of the statutes, but 
none in the meaning of the law. 

The act of March 3, 1887, was amendatory of the act of 1875. 
This act of March 3, 1887, however, contained about 20 errors in 
spelling and punctuation in its enrollment, and accordingly this 
enrollment was corrected by the act of August 13, 1888 (being chap. 
866, p. 433, of vol. 25). By the amendment contained in this act as 
so corrected the amount required to be involved in order for the 
Federal courts to have jurisdiction on grounds of diverse citizenship, 
as well as certain other cases, was changed from $500 to $2,000. 

There was also the following change in the law: The act of 1875 
provided that no circuit or district court should have cognizance of 
any suit founded on contract in favor of an assignee, if no assignment 
had been made, except in cases of promissory notes negotiable by 
the law merchant and bills of exchange. 

The act of 1887, as corrected by the act of 1888, provides on this 
point as follows: 

Nor shall any circuit or district court have cognizance of any suit, except upon 
foreign bills of exchange, to recover the contents of any promissory note or other chose 
in action in favor of any assignee or of any subsequent holder if such instrument be 
payable to bearer and be not made by any corporation, unless such suit might have 
been prosecuted in such court to recover the contents if no assignment or transfer 
had been made. 

This act of 1887 also repealed the provision of the act of March 3, 
1875, which permitted the plaintiff to remove a suit on the grounds 
of diverse citizenship, the reason for the repeal being that having 
once elected his tribunal he should be bound by his election. 

The act of 1887 also made a change in the language which was by 
many considered as quite significant at the time. The second section 
of the act of 1875 had provided as follows: 

That any suit of a civil nature at law or in equity, now pending or hereafter brought 
in any State court, where the matter in dispute exceeds, exclusive of costs, the sum 
or value of $500, and arising under the Constitution or laws of the United States, or 
treaties made or which shall be made under their authority, or in which the United 
States shall be plaintiff or petitioner, or in which there shall be a controversy between 
citizens of different States, or a controversy between citizens of the same State claim¬ 
ing land under grants of different States, or controversies between citizens of a State 
and foreign States, citizens, or subjects, either party may remove said suit into the 
circuit court of the United States. 

The act of 1887, as corrected by the act of 1888, provides that 
the second section of the act of 1875, which has just been quoted, 
be amended so as to read as follows: 

That any suit of a civil nature at law or in equity arising under the Constitution or 
laws of the United States, or treaties made or which shall be made under their general 
authority, of which the circuit courts are given original jurisdiction by the preceding 


4 


CAUSES AGAINST CORPORATIONS. 


section, which may now be pending or which may be hereafter brought in any State 
court may be removed by the defendant or defendants therein to the circuit court of 
the United States for the proper district. 

Any other suit of a civil nature at law or in equity of which the circuit courts are 
given jurisdiction by the preceding section— 

r And this phrase “any other suit” includes those where the ground 
of jurisdiction is solely diversity of citizenship, since that class is 
not included in the first paragraph where the classes are expressly 
set forth— ' 

and which are now pending or which may hereafter be brought in any State court 
may be removed into the circuit court of the United States for the proper district by 
the defendant or defendants therein being nonresidents of that State. 

There being a well-understood distinction in law as well as in 
fact between residence and citizenship, it was believed by many of 
the legal profession at the time, as will appear from reading articles 
in the law magazines contemporary with that act, that the intention 
of Congress was to restrict the right of removal to nonresidents of a 
State wherein they were sued, and, arguing that a corporation having 
an office, an agent, and carrying on all or a portion of its corporate 
business in a State was, in the commonly accepted meaning of the 
term, a resident of such State, it was insisted that the act of 1887 
would abrogate Federal jurisdiction over State corporations where 
the sole ground of such jurisdiction was technical diversity of citizen¬ 
ship. This view was not, however, taken by the Federal courts. 
Residence was construed to be the same thing, in the sense of that 
jurisdiction act, as citizenship. 

In the act of March 3, 1911, the removal law was amended so as to 
change the amount from $2,000 to $3,000. 

This is all the legis at on respecting the matter sought to be affected 
by the proposed bill. 

Turning now to the judicial branch of the Government and looking 
to the action of the courts upon the subject, we find that in 1809, 
while Marshall was Chief Justice, the three cases of Hope Insurance 
Co., of Providence, v. Boardman et al.; Bank of the United States v. 
Deveaux et al.; and the Maryland Insurance Co. v. Wood, came before 
the court, all at the same term, and were all heard together. The 
controlling issue or leading question in each case was whether a cor- 

E oration aggregate was a citizen in the sense of the legislation as 
ased upon or carrying out the constitutional provisions as to juris¬ 
diction where the controversy or suit “is between a citizen of the 
State where the suit is brought and a citizen of another State.” 

It was held by the Chief Justice and the court, in a unanimous 
opinion delivered by Marshall himself, that such was not the status 
of a corporation. The main opinion was delivered in the Deveaux 
case, and it was in that opinion that Marshall used the oft-quoted 
language: 

That invisible, intangible, and artificial being, that mere legal entity, a corporation 
aggregate, is certainly not a citizen, and consequently can not sue or be sued in the 
courts of the United States unless the rights of the members in this respect can be 
exercised in their corporate name. If the corporation be considered as a mere faculty, 
and not as a company of individuals, who, in transacting their joint concerns, may use 
a legal name, they must be excluded from the courts of the Union. 

Following this general statement there is a minute examination into 
the nature and character of a corporation, and the conclusion is 
reached that a corporation, as such, chartered by a State, is not, for 


CAUSES AGAINST CORPORATIONS. 


5 


jurisdictional purposes, a citizen of that State or a noncitizen of 
another State, and may not in the corporate name sue a citizen of 
another State in the courts of the United States; but if it was made 
to appear as a fact that the citizens owning the stock of or composing 
the corporation aggregate were citizens of another State from that 
of the party sued, then the United States courts would have juris¬ 
diction. In other words, the doctrine as there laid down is that 
where the members of a corporation are aliens or citizens of a different 
State from the opposite party and this fact was made to appear 
(presumably in the pleadings) the judiciary act of 1789 confers 
jurisdiction of suits to which they are parties, acting for their corpora¬ 
tion, upon the circuit courts of the United States; but so long as the 
suit is in the corporate name, treating the corporation as an entity, 
under the opinion of Marshall, adhered to so long as he was on the 
bench and repeated in frequent decisions, a corporation aggregate 
was not a citizen in the jurisdictional sense. 

This remained the law until 1844. In that year the celebrated 
case of the Louisville, Cincinnati and Charleston Railroad Company 
v. Letson came before the court, of which Taney was then Chief 
Justice. In that case the doctrine as laid down by Marshall was, 
to use the language of the reporter, “reviewed and controlled.” 
Those words mean there, as of course, that the doctrine was squarely 
overruled and a directly opposite construction given of the statute, 
which had not been changed m any respect bearing upon this question, 
and the doctrine since adhered to was laid down that— 

A corporation created by and transacting business in a State is to be deemed an 
inhabitant of that State, capable of being treated as a citizen for all purposes of suing 
and being sued, and an averment of the fact of its creation and the place of transacting 
business is sufficient to give the circuit courts jurisdiction. 

This doctrine was rapidly carried to its logical end wherein it was 
held that a corporation was conclusively presumed for jurisdictional 
purposes to be a citizen of the State in which it was incorporated, 
and the declaration was made (Kans. Pac. R. R. Co. v. Atchison, etc., 
R. R. Co., 112 U. S.) that in all cases where a Federal court can take 
jurisdiction of controversies between citizens it will take jurisdiction 
of like controversies between corporations or between a corporation 
and a citizen and treat the corporations as citizens of the States under 
whose laws they were created and continue to exist. 

The doctrine has been pressed still further, and the rule has been 
established by the Supreme Court (Nashua, etc., R. R. Co. v. Boston, 
etc., R. R. Co., 136 U. S.), though by a bare majority of that body, 
that where a corporation is created by the concurrent acts of two 
States it is foreign to both in a jurisdictional sense. This was a case 
where a corporation was created by concurrent acts of Massachusetts 
and New Hampshire. Under that decision, if that corporation be 
sued in a State court of New Hampshire it can remove the case to the 
Federal court—the amount involved being sufficient—on the ground* 
that it is a citizen of the State of Massachusetts. If sued in Massa¬ 
chusetts, it straightway moves the case to the Federal court, because, 
forsooth, it is a citizen of New Hampshire. 

For something like 50 years, then, it was the uniform holding of the 
Supreme Court that a corporation was not a citizen in the jurisdic¬ 
tional sense, and for something like 70 years it has been held that it 
was such a citizen. 


6 


CAUSES AGAINST CORPORATIONS. 


There lias been from the time of the holding in the Letson case, 
above referred to, much dissatisfaction with both the profession and 
the laity and repeated demands for a change have been made. The 
House of Representatives has more than once responded to this 
demand by the passage of legislation similar to that in the proposed 
bill, but these acts have failed of passage in the Senate. Some of 
the States have also tried to cure the condition, but found them¬ 
selves helpless to do so in the face of the decisions of the Federal 
courts. 

NECESSITY FOR THIS LEGISLATION. 

One of the evil results flowing from the condition is the encour¬ 
agement given to the formation of “tramp” corporations, corpora¬ 
tions organized under the laws of a State in which its organizers have 
no intention of carrying on any part of the corporate business, the 
organization being perfected there simply to escape the jurisdiction 
of the courts of the States in which it is intended to do business. 
This legislation is therefore demanded as a protection from the 
reckless granting* of charters of incorporation. 

Again, it is believed that foreign and domestic corporations doing 
business in a State should be placed upon the same footing. Now, 
the foreign corporation, although it may do a dozen times the busi¬ 
ness in a State that is done by a domestic corporation, has privileges 
and immunities growing out of its right to transfer causes to the 
Federal courts not enjoyed by the domestic concern. 

Again, the convenience of the public demands this legislation. 
Corporations are increasing in number with greatest rapidity and 
the matter of enforcing rights against them in the courts with speed 
and convenience must be preserved to the citizen. The State courts 
are most convenient to the larger number of the people, and litiga¬ 
tion in these courts is less costly, as a rule, than in the Federal 
tribunals. 

There does not seem to be any sound reason of public policy or 
common justice why corporations operating in States other than 
those in which, they were chartered, operating by virtue of State 
comity and courtesy, having the protection of the peace officers, 
and in the case of public-service corporations exercising the power 
of eminent domain, should not answer in the State courts upon their 
contracts and for their torts. 

The committee therefore recommends that the bill do pass. It 
reads in full as follows: 

[H. R. 23186, Sixty-second Congress, second session.] 

A BILL To amend an act entitled “An act to codify, revise, and amend the laws relating to the judiciary ” 
approved March third, nineteen hundred and eleven. 

Be it enacted by the Senate and House of Representatives of the United States of America 
in Congress assembled , That section twenty-eight of an act entitled “An act to codify 
revise, and amend the laws relating to the judiciary,” approved March third, nineteen 
hundred and eleven, be, and the same is hereby, amended so as to read as follows: 

“Sec. 28. That any suit of a civil nature, at law or in equity, arising under the Con¬ 
stitution or laws of the United States, or treaties made or which shall be made under 
their authority, of which the district courts of the United States are given original 
jurisdiction by this title which may now be pending or which may hereafter be brought 
m any State court may be removed by the defendant or defendants therein to the dis¬ 
trict court of the United States for the proper district. Any other suit of a civil nature 
at law or in equity, of which the district courts of the United States are given juris- 


CAUSES AGAINST CORPORATIONS. 


7 


diction by this title, and which are now pending or which may hereafter be brought 
in any State court may be removed into the district court of the United States for the 
proper district by the defendant or defendants therein being nonresidents of that 
State. And when, in any suit mentioned in this section, there shall be a controversy 
which is wholly between citizens of different States and which can be fully deter¬ 
mined as between them, then either one or more of the defendants actually interested 
in such controversy may remove said suit into the district court of the United States 
for the proper district. And where a suit is now pending or may hereafter be brought 
in any State court in which there is a controversy between a citizen of the State in 
which the suit is brought and a citizen of another State, any defendant being such 
citizen of another State may remove such suit into the district court of the United 
States for the proper district, at any time before the trial thereof, when it shall be made 
to appear to said district court that, from prejudice or local influence, he will not be 
able to obtain justice in such State court, or in any other State court to which the said 
defendant may, under the laws of the State, have the right, on account of such prejudice 
or local influence, to remove said cause: Provided , That if it further appear that said 
suit can be fully and justly determined, as to the other defendants, in the State courts 
without being affected by such prejudice or local influence, and that no party to the 
suit will be prejudiced by a separation of the parties, said district court may direct 
the suit to be remanded, so far as relates to such other defendants, to the State court 
to be proceeded with therein. At any time before the trial of any suit which is now 
pending in any district court, or may hereafter be entered therein, and which has been 
removed to said court from a State court on the affidavit of any party plaintiff that 
he had reason to believe and did believe that, from prejudice or local influence, he 
was unable to obtain justice in said State court, the district court shall, on application 
of the other party, examine into the truth of said affidavit and the grounds thereof and, 
unless it shall appear to the satisfaction of said court that said party will not be able 
to obtain justice in said State court, it shall cause the same to be remanded thereto. 
Whenever any cause shall be removed from any State court into any district court of 
the United States, and the district court shall decide that the cause was improperly 
removed and order the same to be remanded to the State court from whence it came, 
such remand shall be immediately carried into execution, and no appeal or writ of 
error from the decision of the district court so remanding such cause shall be allowed: 
Provided further , That no case arising under an act entitled ‘An act relating to the 
liability of common carriers by railroad to their employees in certain cases,’ approved 
April twenty-second, nineteen hundred and eight, or any amendment thereto, and 
brought in any State court of competent jurisdiction shall be removed to any court 
of the United States: Provided further , That no suit against a corporation or joint-stock 
company, brought in a State court of the State in which the cause of action arose, shall 
be removed to any court of the United States on the ground that the parties are citizens 
of different States if the suit is brought in the county where the cause of action arose 
or within the county where the defendant is served with process and the plaintiff 
resides.” 


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